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Investor & Analyst Conference Frankfurt, March 5, 2012
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1
QSC AG
Investor & Analyst Conference
Frankfurt, March 5, 2012
2
AGENDA
1. Strategic overview 2011
2. Financial overview 2011
3. Financial outlook 2012
4. Strategic outlook 2012 – 2016
5. Questions & Answers
– Preliminary Results FY 2011 –
3
2011: A SUCCESSFUL YEAR FOR THE QSC GROUP
• Revenues: +13% to € 478.1 million
• EBITDA: +2% to € 79.9 million
• EBIT: +25% to € 26.2 million
• Net income: +16% to € 28.0 million
• Free cash flow: +48% to € 41.0 million
Strong operating performance in 2011 and expected future
cash flow growth provide a solid base for the first dividend
Management recommendation: € 0.08 per share
– Preliminary Results FY 2011 –
4
DESPITE ONGOING TRANSFORMATION PROCESS,
QSC CONTINUES TO STAY ON GROWTH COURSE
– Preliminary Results FY 2011 –
5
A SHORT GLANCE AT OUR LATEST ACQUISITIONS …
INFO AG
• IT Outsourcing and IT Consulting specialist with some
130 business customers; rooted in Northern Germany
• At the end of 2011, QSC has acquired 92.3% of
INFO AG shares for a consideration of € 49.4 million
IP Partner
• Housing and Hosting specialist with some
60 business customers, mainly in Southern Germany
• QSC acquired 100% of IP Partner shares effective
Jan 3, 2011 for € 25 million
– Preliminary Results FY 2011 –
6
… AND THEIR SUCCESS IN 2011
INFO AG
• INFO AG won several large consulting and outsourcing accounts
like Dussmann as well as huge natural gas providers
• In 2011, INFO AG accelerated its growth course:
Revenues have grown by 19% to € 101.6 million (2010: +4%)
IP Partner
• Milestone: Opening of a new 1,000 sqm data centre (Tier IV) for
DATEV in Nuremberg and opening of a 5,000 sqm data centre
in Munich (Tier IV as well)
• In 2011, revenues have grown by 33% to € 18.7 million
(2010: +6%)
– Preliminary Results FY 2011 –
7
2011: ACCELERATION OF THE TRANSFORMATION
• Two acquisitions of IT providers: INFO AG and IP Partner
• Successfully attracted new clients in the ICT segment with large
total contract values each > € 5 million
• Ongoing focus on IP-based revenues and gradual reduction of
exposure to legacy TC products
• Stronger focus on intellectual property e.g. development of own
cloud products (launch of cospace in Q1 2012)
• Recruitment of dozens of IT experts to strengthen especially
the fast-growing IT Consulting and Outsourcing business
(total workforce at Dec 31, 2011: 1,303)
– Preliminary Results FY 2011 –
8
QSC + INFO + IP PARTNER = THREE COMPANIES
WITH REMARKABLE COMPLEMENTARY STRENGTHS
– Preliminary Results FY 2011 –
9
NEW SUBSIDIARIES ACCELERATE IP-BASED REVENUES
Success of transformation process
• IP-based revenues grew by:
€ 80.6 million (yoy: +28%)
Three factors have limited faster growth
• Declining call-by-call business
due to market development:
€ -5.6 million (yoy: -15%)
• Decline of ADSL2+ revenues:
€ -19.1 million (yoy: -20%)
• Negative impact of regulation as a
result of lower termination fees:
€ -26.0 million
– Preliminary Results FY 2011 –
10
CUSTOMERS WELCOME THE NEW OPPORTUNITIES,
DEMONTSRATING CROSS SELLING POTENTIAL
– Preliminary Results FY 2011 –
11
QSC GROUP WAS ABLE TO WIN LARGE AND
PROFITABLE ACCOUNTS IN 2011
– Preliminary Results FY 2011 –
12
VERTICAL SALES STRATEGY HELPS TO ACQUIRE
ATTRACTIVE ACCOUNTS
– Preliminary Results FY 2011 –
• QSC group has built up extensive industry know-how in the
energy and gas sector
• With a targeted campaign, the company managed to win several large
accounts and increased its revenues in this field by 40% in 2011
13
SIGNIFICANT IMPACT OF NEW SUBSIDIARIES
IN DIRECT SALES
– Preliminary Results FY 2011 –
Consolidation of INFO AG and
IP Partner as the backbone of
Direct Sales growth
Successes in Up- and Cross-
Selling and New Business
14
• Integration of IP Partner nearly completed at the end of 2011
• Joint sales forces and back office functions
• Management Board includes QSC and IP Partner executives
• Integration of INFO AG started in 2011
• Focus on joint sales projects
• Collaboration on board room level
• Next step: Merger of INFO AG and IP Partner including
squeeze out – completion to be achieved by October 2012
PREPARATION FOR FURTHER GROWTH:
INTEGRATION OF NEW SUBSIDIARIES
– Preliminary Results FY 2011 –
15
PREPARATION FOR FUTURE GROWTH:
DEBUT OF THE NEW QSC GROUP AT CEBIT 2012
– Preliminary Results FY 2011 –
16
• Transformation to a full-service ICT provider for business
customers on back of INFO AG and IP Partner acquisitions
• QSC has all the assets to profit from the ongoing growth
of the ICT market and especially the market for cloud services
• QSC is now able to deliver end-to-end-services – from the
desktop to the data centre; a USP in the ICT and cloud market
An acceleration of the IP based revenue growth seems achievable
through a higher level of integration and cross selling
2011: QSC HAS BECOME AN ICT PROVIDER
– Preliminary Results FY 2011 –
17
AGENDA
1. Strategic overview 2011
2. Financial overview 2011
3. Financial outlook 2012
4. Strategic outlook 2012 – 2016
5. Questions & Answers
– Preliminary Results FY 2011 –
18
Revenues
Network expenses
Gross profit
Other operating expenses
EBITDA profit
Depreciation
EBIT profit
Financial results
Income taxes
Net profit
478.1
323.7
+154.4
74.5
+79.9
53.7
+26.2
-2.8
+4.6
+28.0
+13.3%
+11.8%
+4.0%
+5.8%
+2.3%
-6.1%
+25.4%
-40.0%
-13.2%
+15.7%
QSC GREW ITS EBIT BY 25% IN 2011
– Preliminary Results FY 2011 –
422.1
273.6
+148.5
70.4
+78.1
57.2
+20.9
-2.0
+5.3
+24.2
19
BULK OF COSTS OF INFO AG IS PART OF
COST OF REVENUES
– Preliminary Results FY 2011 –
Structural network
costs declined
significantly
Personnel expenses
are up because of
first-time consolidation
of consulting and
outsourcing business
Direct cost of revenues
increased due to higher
revenues
20
ONGOING DECLINE OF STRUCTURAL NETWORK COSTS
IN ABSOLUTE AND RELATIVE TERMS
– Preliminary Results FY 2011 –
Identified measures to
decrease network costs by
an substantial amount
Contractual network cost
improvements already
secured
Premature termination of
Plusnet Joint Venture
accelerates the optimization
process
21
SHARE OF SG&A COSTS DECLINED IN 2011
– Preliminary Results FY 2011 –
Slight increase of total
SG&A costs due to
first-time consolidation
QSC group now
maintains two
headquarters of listed
companies
Nevertheless, share of
SG&A costs declines in
2011 – strict cost
discipline has paid off
again
22
FURTHER REDUCTION OF DEPRECIATION IN 2011
– Preliminary Results FY 2011 –
Two major factors
Ongoing decrease of
depreciation for network-
and customer-related
investments
One-offs due to purchase-
price allocation
23
QSC ADOPTS NEW SEGMENTATION
FOR THE FIRST TIME
– Preliminary Results FY 2011 –
24
NEW SEGMENTATION IS STRENGTHENING
THE INDIRECT SALES BUSINESS
No change in Direct Sales /
Managed Services
Indirect Sales benefits
because of the inclusion of
the B2B2B business
Wholesale business suffers
from decline in Call-by-Call
and ADSL2+ business
– Preliminary Results FY 2011 –
25
INVESTMENTS IN DATA CENTRES LED
TO A SLIGHT INCREASE OF CAPEX
In 2011, QSC has extended its data
centre capacity to 10,000 sqm
Apart from that, investments focus
shifted to new customers and
maintenance
In general, QSC targets to invest
8% of revenues per year
Percentage varies between
6 – 10%, mainly due to investments
in new data centre capacity
– Preliminary Results FY 2011 –
26
POSITIVE DEVELOPMENT OF FREE CASH FLOW
– Preliminary Results FY 2011 –
QSC has reached reiterated
guidance for 2011 to achieve a
free cash flow of € 40 – € 45 million
Free cash flow influenced by a
one-time impact of former Plusnet
partner TELE2 in 2011
27
STRONG FCF SUPPORTS NET DEBT REDUCTION
– Preliminary Results FY 2011 –
28
QSC‘S FINANCING BUILT ON A SOLID BASIS
– Preliminary Results FY 2011 –
Net debt
EBITDA = 0.4x
29
• Management recommendation for 2011: € 0.08 per share
• Dividend yield as of December 31, 2011: 3.8%
• Dividend strategy
• QSC plans to pay a dividend for each fiscal year
• € 0.08 per share is a minimum amount for the years to come
• QSC aims to grow the amount continuously,
driven by expected cash flow growth
• Whilst maintaining conservative credit ratios
STRONG BALANCE SHEET AND FINANCIAL STRENGTH
ARE A VERY GOOD BASE FOR ATTRACTIVE DIVIDENDS
– Preliminary Results FY 2011 –
30
AGENDA
1. Strategic overview 2011
2. Financial overview 2011
3. Financial outlook 2012
4. Strategic outlook 2012 – 2016
5. Questions & Answers
– Preliminary Results FY 2011 –
31
2012: PREPARATION FOR FUTURE GROWTH
– Preliminary Results FY 2011 –
In 2012, QSC expects to achieve
• Revenues of € 480 – € 510 million
• A rise in Direct Sales above market average
• A steady development in Indirect Sales
• A decline in Wholesale due to lower
CbC and ADSL2+ revenues
• An EBITDA margin of at least 16%
• A free cash flow of € 22 – € 32 million
32
+
• Strong demand for Consulting
and Outsourcing services
• Growing revenues with cloud-
based products and services
• Positive consolidation effect of
some € 31 million compared to
2011
2012 CHARACTERIZED BY A TWOFOLD DEVELOPMENT
-
• Decline of CbC / ADSL2+
business of € 25 million
• Negative impact of
regulation of € 6 million
• Possibly, negative impact of
macro-economic risks
Main part of Transformation Process will be completed by year-end 2012
– Preliminary Results FY 2011 –
33
EBITDA-MARGIN WILL BE AT LEAST
AT THE SAME LEVEL AS IN H2 2011
– Preliminary Results FY 2011–
34
POSITIVE FREE CASH FLOW
ADJUSTED FOR ONE-TIME EFFECTS
– Preliminary Results FY 2011 –
Ongoing strong cash
generation of operative
business
In 2012, free cash flow does
not include € 21 million
payments for operative
business of former Plusnet
co-owner TELE2
35
AGENDA
1. Strategic overview 2011
2. Financial overview 2011
3. Financial outlook 2012
4. Strategic outlook 2012 – 2016
5. Questions & Answers
– Preliminary Results FY 2011 –
36
• Network cost improvements already contractually secured
• Start of the industrialization of the INFO AG delivery,
based on QSC’s significant experience in this field
• Focus on higher-margin products and services
• Development of further intellectual property, SaaS Offerings
2012: QSC WILL PAVE THE WAY TO EARN
HIGHER MARGINS IN THE YEARS TO COME
– Preliminary Results FY 2011 –
37
2012: QSC WILL MAKE PROGRESS ON EVERY
STRATEGIC LEVEL TO INCREASE REVENUES
– Preliminary Results FY 2011 –
38
SIGNIFICANT POTENTIAL OF UP- AND CROSS-SELLING
– Preliminary Results FY 2011 –
39
FULL-SERVICE PRODUCT PORTFOLIO: INTEGRATED
AND EXTENSIVE OFFERING FOR QSC CUSTOMERS
– Preliminary Results FY 2011 –
40
INNOVATION 2012:
QSC WILL OFFER FURTHER CLOUD SERVICES
– Preliminary Results FY 2011 –
41
QSC IS PRESENTING THE FIRST PRODUCTS
FOR THE INDIRECT SALES CHANNELS
– Preliminary Results FY 2011 –
QSC-Housing – Launch in Q1 2012
• New product is based on the long-term experience of IP Partner
in Housing and Hosting projects
• Within 12 months, QSC has managed to transfer an individual
solution into a marketable product for sales channels
• QSC-Housing offers a standardized and cost-effective solution for
SMEs to take advantage of cloud computing
• QSC-Housing is a perfect door opener for further cloud services
42
Abroad
QSC-Mobile (Apps)
QSC-F2M Group
QSC-Office mobile
MBF
PSTN
Open
Acces
DTAG/TO2
QSC-Storage QSC-Analyser
IPfonie centraflex /
PBX
MS Hosted Exchange
MS Office
QSC-vServer
MS Lync Server
MS Sharepoint
LAUNCH OF SEVERAL CLOUD PRODUCTS
Abroad
Int. number
MS Licenses
IPfonie extended
QSC-Office vDesktop
xDSL/ WLL/
LL/ VPN
MS Dynamics
QSC-Housing
QSC-Cospace plus
“Voice Features“
Q-DSL max/ office/ regio (S/ADSL)/
pro (S/A/VDSL)/ QSC-WLL/ QSC-LL/
C-VPN/ Proj-VPN/ iWAN
– Preliminary Results FY 2011 –
43
SUCCESS OF NEW PRODUCTS DEPENDS
ON EFFECTIVE SALES CHANNELS
– Preliminary Results FY 2011 –
Partner Sales focuses on 10-to-500-employees companies
44
R&D 2012: DEVELOPMENT OF HIGHLY SCALABLE
PRODUCTS
– Preliminary Results FY 2011 –
45
QSC IS GROWING ITS INTELLECTUAL PROPERTY:
WILL BE PRESENTED ON CEBIT 2012
cospace is the first SaaS offering QSC
completely developed on its own
Key features are
Conferencing
Voice mailbox
Fax
Storage
Collaboration
– Preliminary Results FY 2011 –
46
IS A REAL CLOUD APPLICATION
Product / technology
Web 2.0 application using state-of-the-art browser technology
to integrate “classic” ICT features (voicebox / fax / conferencing)
A “real” cloud application: scales to the sky with minimal
production costs
Dual marketing / sales approach
• A completely free-of-charge offering for anyone on the web
(“community edition”), available at http://cospace.de
• A business product (“QSC-Cospace business”) integrated in
QSC’s portfolio, to be launched at CeBIT 2012
– Preliminary Results FY 2011 –
47
SensorCloud: A highly scalable platform for interconnected sensors
and steering applications; presentation at CEBIT 2012 in the context
of BMWi Lab-Talk. First products planned for 2013
O(SC)2AR: A Communication and Cloud system for integrating electric
cars in a SmartGrid and SmartTraffic. Project will be presented at
Hannover fair 2012. Certification of E-Car expected in 2014
Energy management for decentralized regenerative power production:
In 2011/2012 QSC has started research collaboration with RWTH
Aachen and won a first industrial partner
FURTHER SCALABLE CLOUD R&D PROJECTS
IN THE PIPELINE
– Preliminary Results FY 2011 –
48
CLOUD-BASED PRODUCTS WILL COME TO MARKET,
READY FOR INNOVATION
– Preliminary Results FY 2011 –
49
QSC IS WELL POSITIONED TO GRAB THIS
MARKET OPPORTUNITY
Large-scale
enterprises
Number of employees
In Germany
(total 27.7m)
Medium-sized
companies
Small-sized
companies
Completely
standardized
IT-products
Standardized
IT-services with
individual
migration
process
Individual
IT-service
delivery
– Preliminary Results FY 2011 –
50
SUCCESS OF CLOUD PRODUCTS WILL DEPEND
ON STRATEGIC ALLIANCES
Extending the close cooperation with leading universities and industry
partners already to drive the development of scalable products
Now, the company is also seeking to build strategic alliances
with leading industrial players
In 2012, the formation of strategic alliances will become a
core topic for the management board
– Preliminary Results FY 2011 –
51
• Integration: QSC will complete the merger of INFO AG and
IP Partner and intensify collaboration of sales forces
• Cost structure:
• QSC will reduce network costs
• QSC will optimize the IT-delivery process
• Up- and Cross-Selling: Direct sales revenues expected to grow
faster than the market
• Cloud products:
• QSC will launch 4-6 new products or even more in 2012
• QSC will win 50 additional IT sales partners
• Intellectual property: QSC will launch further self-developed
SaaS cloud-based products
MILESTONES 2012 AT A GLANCE
– Preliminary Results FY 2011 –
52
PROGRESS IN 2012 WILL PAVE THE WAY FOR
DOUBLING REVENUES UNTIL 2016
– Preliminary Results FY 2011 –
In 2016, QSC will be a company with
• Revenues of € 0.8 – € 1.0 billion
• An EBITDA margin of 25%
• Free cash flow of
€ 120 – € 150 million
Growth will be driven by
• Up- and cross-selling at the existing
customer base of 30,000 companies
• Sale of cloud products to existing
and new customers
• Launch of cloud products for
mass markets
53
AGENDA
1. Strategic overview 2011
2. Financial overview 2011
3. Financial outlook 2012
4. Strategic outlook 2012 – 2016
5. Questions & Answers
– Preliminary Results FY 2011 –
54
CONTACT
QSC AG
Arne Thull
Head of Investor Relations
Mathias-Brüggen-Strasse 55
50829 Cologne
Phone +49-221-6698-724
Fax +49-221-6698-009
E-mail [email protected]
Web www.qsc.de
twitter.com/QSCIRde
twitter.com/QSCIRen
blog.qsc.de
xing.com/companies/QSCAG
slideshare.net/QSCAG
paulrobertloyd.com/2009/06/social_media_icons
– Preliminary Results FY 2011 –
55
SAFE HARBOR STATEMENT
This presentation includes forward-looking statements as such term is defined in the U.S. Private
Securities Litigation Act of 1995. These forward-looking statements are based on management’s
current expectations and projections of future events and are subject to risks and uncertainties.
Many factors could cause actual results to vary materially from future results expressed or implied
by such forward-looking statements, including, but not limited to, changes in the competitive
environment, changes in the rate of development and expansion of the technical capabilities of
DSL technology, changes in prices of DSL technology and market share of our competitors,
changes in the rate of development and expansion of alternative broadband technologies and
changes in prices of such alternative broadband technologies, changes in government regulation,
legal precedents or court decisions relating, among other things, to line sharing, rent for co-
location and unbundled local loops, the pricing and timely availability of leased lines, and other
matters that might have an effect on our business, the timely development of value-added
services, our ability to maintain and expand current marketing and distribution agreements and
enter into new marketing and distribution agreements, our ability to receive additional financing if
management planning targets are not met, the timely and complete payment of outstanding
receivables from our distribution partners and resellers of QSC services and products, as well as
the availability of sufficiently qualified employees.
A complete list of the risks, uncertainties and other factors facing us can be found in our public
reports and filings with the U.S. Securities and Exchange Commission.
– Preliminary Results FY 2011 –
56
• This document has been produced by QSC AG (the “Company”) and is furnished
to you solely for your information and may not be reproduced or redistributed, in
whole or in part, to any other person
• No representation or warranty (express or implied) is made as to, and no
reliance should be placed on, the fairness, accuracy or completeness of the
information contained herein and, accordingly, none of the Company or any of its
parent or subsidiary undertakings or any of such person’s officers or employees
accepts any liability whatsoever arising directly or indirectly from the use of this
document
• The information contained in this document does not constitute or form a part of,
and should not be construed as, an offer of securities for sale or invitation to
subscribe for or purchase any securities and neither this document nor any
information contained herein shall form the basis of, or be relied on in connection
with, any offer of securities for sale or commitment whatsoever
DISCLAIMER
– Preliminary Results FY 2011 –